Taking The Earth Into Account

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It's every corporation's night-mare: a throng of rowdy activists gathers outside company buildings to protest alleged environmental and human-rights abuses. That was the scene in New York City and Chicago last month as dozens of people in white haz-mat suits converged on the offices of JPMorgan Chase to decry what they claimed was the bank's underwriting of illegal logging in Indonesia, and human-rights abuses tied to a Chase-funded mining operation in Peru. Oil companies and industrial giants may be accustomed to such treatment, but not JPMorgan Chase, the second largest bank in the U.S. Two weeks after the protests, the firm announced that it would introduce policies to promote sustainable forestry and indigenous peoples' rights, and block funding that could be used for illegal logging. It also promised to reduce its own, and its clients', carbon emissions. Chalk up another victory for environmentally and socially responsible finance.

Ten years ago, big private banks didn't feature on environmentalists' hit lists; activists focused on large corporate polluters in the oil and timber industries. Over time, though, green groups have realized that one effective way to halt destructive practices is to take on the institutions that bankroll them. "The private financial sector, more than any other, has the ability to begin the ecological U-turn modern society so desperately needs," says Ilyse Hogue, director of the global finance campaign at Rainforest Action Network (ran), which led the fight against JPMorgan Chase. Yet even as they have publicly confronted big financial institutions, green groups — many of whom belong to a loose collection of nongovernmental organizations known as BankTrack — have also privately collaborated with banks to jointly tackle environmental and social concerns.

The direct action and dialogue are paying off as banks begin to set green goals. HSBC has promised to cut carbon emissions, for instance, while Bank of America has pledged to shun investments in logging operations in the world's most sensitive forests. Even more important is the introduction of new industry standards such as the Equator Principles, which "promote responsible environmental stewardship and socially responsible development" by evaluating the threats projects pose to forests, natural habitats and indigenous populations. Thirty major private banks, including U.S. giants Citigroup, JPMorgan Chase and Bank of America, and European powerhouses ABN Amro, Barclays, HSBC and ING, have so far signed up to the principles. According to Jon Williams, head of sustainability risk management at HSBC, the guidelines now cover some 80% of the global project-financing market. "Everyone is interested in the balance between sustainability and economic development," Williams says. "We believe you can do well and do good."

In terms of overall lending, project financing is a small part of most banks' operations — between 5% and 10% for HSBC, for example — but environmentally and socially sound lending can have a huge long-term impact. Underwriters such as Citigroup point to the World Bank-backed pipeline running from Chad's oil fields through Cameroon to the Atlantic. Extensive environmental impact assessments were carried out before work got the green light, and oil companies like ExxonMobil have provided compensation and health care to locals whose lives and livelihoods have been disrupted by the development. A trust fund, designed to give all Chadians — and not just a well-connected élite — a share of the profits is another improvement, even if green groups such as Friends of the Earth say the project hurts the environment and exacerbates social problems and human rights abuses.